[Geumtongwi poll]② "This Year's Growth Rate in the 1% Range... Need to Inject Money and Lower Interest Rates"

Asia Economy Survey of 10 Domestic Experts
Some Forecast Early 1% Range for This Year's Economic Growth
Consumer Prices Face Both Upward and Downward Pressures
"Weak Domestic Demand Means Inflation Unlikely to Exceed 2.0%"
For Economic Recovery... "Fiscal Expansion and Interest Rate Cuts Most Recommended"

On the 25th, ahead of the Bank of Korea's base interest rate decision and economic outlook announcement, the majority of domestic experts predicted that South Korea's economic growth rate this year would remain in the 1% range. Some experts expected growth in the low 1% range. With both inflationary and deflationary factors coexisting, sluggish consumption was seen as limiting the upward trend. As the possibility of the Korean economy entering a prolonged low-growth phase increases, many voiced the need for coordinated fiscal and monetary policies that involve injecting money and lowering interest rates.

Most Expect Growth Rate of 1.6?1.7% This Year... Bank of Korea Likely to Lower Its Forecast

A survey conducted by Asia Economy from the 17th to the 21st among 10 economic experts from domestic and international economic research institutes, major securities firms, and banks found that half of the respondents forecast South Korea's economic growth rate this year to be between 1.6% and 1.7%. Specifically, three experts predicted 1.6%, and two predicted 1.7%.

All respondents anticipated that this year's economic growth rate would not exceed 2%. Last year, the gross domestic product (GDP) growth rate was 2.0%. The highest forecast was 1.7%, which is even lower than the Bank of Korea's November forecast of 1.9%. All experts who participated in the survey believed that the Bank of Korea would likely lower its GDP growth forecast in the economic outlook announcement on the 25th.

Two respondents expected growth in the low 1% range (1.2?1.3%). Kang Minju, Chief Economist at ING Bank, stated, "Exports will still drive growth, but momentum has weakened compared to last year, and construction investment and private consumption are expected to remain sluggish in the first half of the year." She added, "The effects of fiscal and monetary policies are expected to take effect with a lag, likely impacting growth only after the second half, so I forecast this year's growth rate at 1.3%."

Experts downgraded their growth forecasts, citing sluggishness in all indicators except semiconductor exports, including exports, consumption, and construction investment. Ahn Jaegyun, a researcher at Shinhan Investment Corp., said, "Domestic demand weakness centered on construction investment and private consumption shows signs of prolongation, and the possibility of a slowdown in export growth excluding semiconductors suggests that this year's growth may be weaker than expected." He lowered his previous forecast from 1.9% in November to 1.6%.

There remains a possibility of further downward revision. Park Sanghyun, a researcher at IM Securities, revised his economic growth forecast to 1.5% and stated, "Depending on policy risks stemming from Trump, the possibility of further growth slowdown should be considered."

Inflation Expected at 1.9?2.0% This Year... In Line with Bank of Korea's Forecast

Four experts predicted this year's inflation rate at 2.0%, the most common forecast. Three respondents expected 1.9%, closely aligning with the Bank of Korea's forecast of 1.9%. One expert forecasted 1.7%.

Experts viewed inflation as influenced by both upward and downward pressures this year. Kim Seongsu, a researcher at Hanwha Investment & Securities, said, "There are both upward pressures from exchange rate increases and downward pressures from sluggish consumption."

However, experts believed that downward pressures would be stronger, preventing inflation from exceeding 2.0%. Supply-side inflation pressures such as international oil prices are not high, and sluggish consumption is paradoxically expected to stabilize prices. Economist Kang Minju said, "The weak won and food prices will exert upward pressure on inflation, but due to weak domestic demand, price increases, especially in the service sector, will be limited." She added, "The weak international oil prices will also be a major factor stabilizing domestic inflation around 2%." Huh Jisoo, Senior Researcher at Woori Financial Management Research Institute, who predicted a 1.7% increase, said, "I considered the weakening demand for goods and services due to sluggish domestic demand, as well as the stability of real estate prices and wages," placing greater weight on downward factors.

To Revive the Economy, Increase Fiscal Spending and Lower Interest Rates... Calls for Active Policy Measures

The most common opinion was that a combination of expanded fiscal policy, including supplementary budgets, and monetary policy such as base interest rate cuts is necessary for economic recovery. There were also calls for policy responses that can revive the private economy.

Six experts (multiple responses allowed) said that fiscal expansion, including supplementary budget formulation, is necessary for future economic recovery. They answered that appropriate coordination with monetary policy, such as interest rate cuts, is needed. Kang Seungwon, a researcher at NH Investment & Securities, said, "As an export-oriented country, South Korea needs a recovery in external demand, and policymakers should allow sufficient time for this recovery." He added, "Currently, a policy combination of fiscal spending and interest rate cuts is necessary."

While agreeing on the supplementary budget, which is becoming more visible with bipartisan consensus, there were suggestions to reduce government bond issuance to enhance the growth effect. Researcher Ahn Jaegyun said, "The supplementary budget is a policy to increase growth, but the economic effect is higher when expenditure increases are large and government bond issuance is low." He added, "Efforts to reduce government bond issuance through expenditure restructuring before fiscal expansion are also important."

There are also calls for aggressive and close policy coordination by policy authorities such as the Ministry of Economy and Finance and the Bank of Korea. Researcher Park Sanghyun emphasized, "To prevent further deterioration of the domestic economy, early supplementary budgets and active interest rate cuts are necessary," adding, "Active policy measures that can boost the sentiment of economic agents are more needed than ever." Jo Youngmoo, a research fellow at LG Economic Research Institute, stated, "It is necessary to form an accurate understanding and consensus among policymakers about the current economic situation and to respond actively based on this."

There are also opinions that policy focus should be on private economic recovery. Economist Kang Minju said, "Along with solutions for local construction, it is urgent to prepare policies that can revive the private economy, such as providing incentives for corporate research and development (R&D) investment." Researcher Kim Seongsu expressed a negative view, saying, "No matter what is done, short-term economic improvement will not be easy."